Northgate Minerals Corp. (NXG) engages in the acquisition, development and production of gold and copper in Australia and Canada. The Company forecasts record gold production of more than 380,000 ounces. The Company’s production is unhedged, allowing for a maximum overall average per ounce price at time of delivery. The Company’s acquisition strategy focuses on jurisdiction-friendly properties, minimizing disruptive geopolitical risk and loss.

Company management is among the finest in the industry, delivering results as forecast, and has earned a reputation for attracting the finest professionals available. The Company’s Kemess open-pit operation was transformed into one of the most efficient and profitable projects throughout the world. Management delivered record earnings of $107 million and record cash flow in 2006, and was a result of the execution of the Company’s operations at Kemess.

The Company’s “cherry-picking” strategy includes acquiring late-stage developers in need of cash, or taking over ongoing mines not operating at optimum production. In February 2008, the acquisition of Perseverance Corp. Ltd. is a recent example, with record gold production of 354,000 ounces achieved in 2008 and record revenue of $461 million of revenue. The Company forecasts another record year of more than 380,000 ounces of gold production in 2009 at a time the price of gold is approaching all-time record highs.

Founded in 1919, the Company is headquartered in Vancouver, Canada.

Source: Reuters.com, SEC Filings.

Source: Reuters.com

Source: Reuters.com

Eight analysts polled by Thomson Reuters rate shares of NGD an “Outperform.” The details of the analysts polled are as follows:

Analyst Recommendations and Revisions

Source: Reuters.com

Today’s Gold Market

In 2008, world gold production output reached 76 million ounces, falling each year since peaking in 2001 at 83 million ounces. Most recent statistics, however, show gold production levels increasing again, estimating to reach 6% growth by the end of 2009, according to the CPM Group.

Once dominated by South Africa for many years, 2008 gold production statistics show China at 12.2% of total global production, is now the largest producer of gold in the world, followed by the United States at 9.9%, South Africa at 9.8 %, Australia at 9.6%, Peru at 7.4% and Russia at 7.0%.

Market demand is driven by three factors, including jewelry (mostly from India), investment and industrial demand. Investment demand remains as the primary factor for record prices, both in nominal terms and real terms. During times of monetary inflation and central bank balance sheet expansion, investment demand increases and becomes the most important source of demand for ever higher prices in a gold bull market.

After the burst of the NASDAQ equities bubble in 2000, central banks worldwide increased money supply at rates not matched since the decade of the 70s, as central banks fight to protect consumer spending and economic growth. As a result of easy monetary policies of the world’s central banks, investors, money managers, sovereign wealth funds and, just recently, central banks, have been purchasing gold as an inflation and currency hedge against further declines in the U.S. Dollar and other currencies loosely pegged to the dollar.

At its peak in 2008, money supply grew by double-digit rates in almost all significant currencies of the world. Today, preservation of wealth has become an important strategy against further financial system failures and debasements of fiat currencies, not just in the U.S. dollar, but currencies worldwide.

Trading partners not wishing to experience the headwinds of a strong currency against the dollar have debased their countries’ currencies as well. For the first time in history, almost all central banks have embarked on a currency debasement policy in response to the U.S. Federal Reserve’s policy of “quantitative easing,” or money printing—the prelude to future inflation. Gold remains as the ultimate hedge to higher commodities prices, taxes and declining purchasing power parity with other nations.

After the “deflationary scare” of the first quarter of 2009, which continued into the entire second quarter—brought on by the liquidity crisis following major financial institution failures—investment capital has now moved back into the commodities market, especially the markets traditionally attractive to currency debasement havens such as gold, silver, oil and other commodities. For more than 5,000 years, gold always takes on its intrinsic role as real money, and is the only store of value with no counter-party risk.

Company Highlight and Competitive Advantage

The Company owns and operates gold mining operation within jurisdictions with reputations of political stability and less-restrictive mining laws. Jurisdictional climate contributes highly in professional investors’ interest in any gold miner. Multiple incidents of mine confiscations and other disruptive government-sanctioned activities including political turmoil affect mine production, or outright mine ownership, have hurt mining share values over the years. Aurlian’s large gold discovery in Ecuador and subsequent delays in mining production is frequently pointed to as a realistic risk of investing in companies operating in countries with weakly enforced contract and property laws. The Company operates in jurisdictions historically miner-friendly. Canada and Australia have long histories of political stability and mining-friendly legislation and protection.

Cost of production is the next factor affecting profitability of gold mining. Each gold find and operation comes with varying factors affecting the cost of per ounce production. Many companies may find significant gold deposits, but for reasons of location, available labor, or the property’s geology can affect net margins dramatically. The Company’s cost of production is relatively low, and as production expands the Company will benefit from greater economies of scale and improved net margin. The Company’s Kemess operation is ideal, in that the mine is open-pit and located in one of the most mining-friendly jurisdictions of the world, British Columbia, Canada.

Company management is another important fundamental affecting the gold price. The gold industry holds a notorious reputation of mismanagement, mostly stemming from smaller junior and marginal producers operating without the expertise of raising capital or production. Companies headed by geologists without Wall Street or overall corporate financial experience are common to the industry. Gold mining companies with experienced management and track records receive the bulk of professional and institutional money.

Gold analysts expect the gold price to remain above $700 per ounce for the remainder of the year, with some high-profile analysts expecting a full-blown breakout of the $1,000 level to $1,260+ by year-end. The Company offers leverage to the gold price; so as the price of gold rises, well-run and profitable mines typically rise at a faster rate than the underlying commodity. Additionally, profession investors and money managers typically purchase miners in production during this early stage of the gold bull market. Nearly 30 years ago, the price of gold in U.S. dollars reached an intra-day high of $895. In inflation-adjusted terms, the price of gold in U.S. dollars would need to top approximately $2,300 before the bull market in gold could be truly considered mature.

Recent News

The Company recently announced an update on its Fosterville Gold mine in Victoria, Australia, reporting “continued exploration success” in its Phoenix Deeps drilling program designed to test for gold mineralization. NXG launched the drilling program to upgrade existing inferred mineral resources to reserve classification and reported that it was successful in intersecting significant gold reserves just south of current reserves.

The Company also said it received significant assay results from six diamond drill holes in the Phoenix Extension area, just south of existing reserves.

Source: http://stockcharts.com/h-sc/ui?s=nxg

NXG trades above its 13-day moving average. This bullish sign is significant because the moving average are also positively trending.

The MACD for NXG currently indicates a bullish signal. The MACD is above the signal line, a 9-day moving average of the MACD. The MACD is also above the critical level of 0, which implies the past price action had been positive. Overall, the chart is bullish following a consolidation and foundation between the $2.00 and $2.50 price range. The RSI indicates steady upwardly trending strength, and is moving into a short-term overbought range.

Source: Thomson Financial

Data provided by Thomson Financial

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